Banks target first-home buyers

Lenders are launching mortgage products to get over the hurdle of property affordability for first-home buyers, who are facing increasingly stiff competition from a resurgence of investors.

Commonwealth Bank of Australia subsidiary BankWest has released a loan with an interest rate that reduces over time, while Yellow Brick Road has scrapped the requirement for a savings history with a financial institution.

Separately, Westpac yesterday tweaked its loan-to-value ratios, a move that reduces the size of a deposit needed relative to a property’s value. In a sign it is becoming more comfortable with the economic backdrop, the bank moved LVRs from 87 per cent to 92 per cent for new bank customers and maintained its LVR at 97 per cent for existing customers.

From September Westpac will also cut its deferred establishment fee, which applies if a mortgage is repaid within four years, from $900 to $700.

BankWest head of mortgages Dean Gillespie said first-home buyers had fallen from 25 per cent of its mortgage book to 10 per cent in the past six months, while the proportion of investors had risen from 10 per cent to 15 per cent.

“The two big issues borrowers face are affordability and the perception that their loyalty with a lender is not recognised," he said.

In response, BankWest’s Rate Cutter Home Loan offers an increasing discount the longer a customer stays on the product. The mortgage starts with a 0.4 per cent annual discount off the lender’s standard variable rate and increases by 0.1 per cent for the next four years to a maximum discount of 0.8 per cent, which then applies for the remaining life of the loan.

Yellow Brick Road founder
Mark Bouris
said the issue of affordability also motivated its First Step option. With this loan, the origin of a buyer’s deposit is not a factor in determining their suitability. Instead income, credit history and other factors are used to assess repayment ability.

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“There is huge demand among first- home buyers who are being knocked back all over the place," he said. “We soft-launched the product last week and had strong take-up along the New South Wales South and Central Coasts, and in Queensland – areas popular with first-home buyers."

He noted Australian Bureau of Statistics figures that showed for the year to June first-home buyer commitments as a percentage of total owner occupied housing finance commitments fell 11.1 per cent, representing a drop of about 60,000 first-time buyers from the market.

Most major banks dropped their maximum LVRs from 95 per cent to 90 per cent during the financial crisis and introduced genuine savings requirements of at least 5 per cent shortly after the boosted first-home owner’s grant was released in October 2008.

In the past year banks have started to differentiate between new and existing clients, offering more generous LVRs to borrowers they know.

The most affordable standard variable mortgages on offer from lenders with wide distribution include Newcastle Permanent at 6.49 per cent, NAB at 6.54 per cent and credit union mecu at 6.59 per cent, researcher Cannex reported.